5 ways to save for retirement without a full-time job or 401k – CBS News

“Steps to Maximize Your 401k.” “How to Master Your 401k.” “Ways to Increase Your 401k.” Headlines such as these are common in personal finance publications, and tend to give the impression that a 401k account is the way to save for retirement. For most employees, it is.

About 80 percent of full-time workers have access to employer-sponsored retirement plans — the majority of which are 401k’s, according to the American Benefits Council. But if you’re not a full-time employee and don’t have access to a 401k or similar workplace plan, you might be wondering how you’re supposed to save for retirement.

As a self-employed writer, I haven’t had access to a workplace retirement plan for 15 years — but that hasn’t stopped me from saving. In fact, there are several ways to build a nest egg if you work part-time and don’t have access to a retirement plan at work, are self-employed or have your own business.

“It seems sometimes daunting to think about having to open up your own retirement account and navigate the many investment options, rather than just plug into the company sponsored 401k plan or pension plan if you are employed for a company,” said Michael Hardy, a certified financial planner with Mollot & Hardy in Amherst, N.Y. But, in fact, it’s simple to set up any of the plans that are available if you’re saving on your own, he said.

As the name suggests, an Individual Retirement Arrangement — or IRA — gives people a way to save for retirement on their own. Although it’s not geared specifically to the self-employed, since employees can open one of these accounts, too, a traditional IRA is an easy way build a nest egg — especially if you can’t afford to set aside a large amount every year.

If you have earned income, you can contribute up to $5,500 to an IRA in 2016 — or $6,500 if you’re 50 or older. You can open an account with a bank or financial institution, investment firm or even a life insurance company, and can invest in a variety of securities such as stocks, bonds, mutual funds, exchange-traded funds, annuities and certificates of deposit.

There are some nice tax benefits of a traditional IRA, too. You can deduct the full amount of your contribution on your federal tax return as long as neither you nor your spouse is covered by a retirement plan at work and your modified adjusted gross income is $183,000 or less. Plus, you don’t have to pay any taxes on the earnings on your IRA investments until you withdraw the money in retirement.

2. Save in a Roth IRA

The contribution limits for a Roth IRA are the same as a traditional IRA, and you have the same wide array of investment options. But there are some key differences between a Roth and traditional IRA.

Although you must have earned income to contribute to a Roth, you can’t have too much. Your modified adjusted gross income must be less than $117,000 if you’re single, or $184,000 if you’re married filing jointly, to contribute the maximum $5,500 — or $6,500 if you’re 50 or older — in 2016. The amount you can contribute is reduced if you make between $117,000 and $132,000 if you’re single and $184,000 and $194,000 if you’re married filing jointly. Once your income tops the higher end of those limits, you can’t contribute to a Roth.

The other big difference is that you can’t deduct Roth contributions. However, you don’t have to pay any taxes when you withdraw money from a Roth as long as you’re 59½ or older and have had the account for five years. So a Roth can be a great source of tax-free income in retirement.

Alpert said Roth IRAs are a great way for younger adults to save because they have the benefit of time. Even though the Roth contribution limit is relatively low, the money can grow significantly thanks to compounding interest if you start saving at a young age. And you’ll likely be in a higher tax bracket by the time you reach retirement than when you started contributing — which makes tax-free Roth withdrawals especially appealing.

But if you want to have enough saved for a comfortable retirement, you’ll likely need to open another type of account. “Ultimately, the contribution limits on a Roth make it difficult to rely solely on one,” Alpert said.

3. Save in a SEP

After I left a full-time job to become a contract worker, I rolled my 401k into a Simplified Employee Pension (SEP) and have been saving in that account ever since. This retirement account can be used by the self-employed and small business owners and can easily be set up with a bank, brokerage or investment firm such as Fidelity or T. Rowe Price. I set mine up with Vanguard because of its super-low fees.

The self-employed can contribute up to 20 percent of net earnings from self-employment to a SEP — business owners can contribute up to 25 percent of compensation — up to a maximum of $53,000. An accountant, financial planner or even tax software can help you figure the actual dollar amount you can contribute.

Because contributions to a SEP are tax-deductible and grow tax-deferred, it’s like you’re getting free money from the government, Alpert said. Whatever amount you set aside in this account is basically sheltered from income taxes until you withdraw it in retirement. You have until the due date of your tax return in April to open and fund a SEP, which makes this account good for procrastinators.

4. Save in a Solo 401k

The self-employed can actually save in a 401k by setting up a one-participant — or solo — 401k. And you can set aside more with one of these individual accounts than with a workplace 401k. That’s because you get to act as both employee and employer.

As an employee, you can contribute up to 100 percent of your earned income up to a maximum of $18,000 in 2016, or $24,000 if you’re 50 or older. On top of that, you can contribute up to 20 percent of net earnings from self-employment, or 25 percent of compensation as a business owner. However, combined contributions can’t exceed $53,000.

Because you can set aside a percentage of income and an employee contribution, a solo 401k allows you to set aside more at lower income levels than with a SEP, Alpert said. I didn’t opt for the solo 401k more than a decade ago when I became self-employed because fees were high and providers were limited. Now many financial institutions offer solo 401ks, and there are low-fee options. You have to open an account and make contributions by Dec. 31.

5. Save in a SIMPLE IRA

You can put all net earnings from self-employment into a SIMPLE IRA, up to $12,500, Alpert said. Plus, you can make a 3 percent matching contribution as an employer and an additional $3,000 catch-up contribution if you’re 50 or older.

Obviously, the maximum contribution isn’t as high for a SIMPLE IRA as for a SEP or solo 401k. But if your self-employment wages are low, you can contribute more with a SIMPLE than a SEP because there isn’t a percentage of income cap. You can open one through a bank or other financial institution.

You’ll notice that “let your business be your retirement fund” isn’t listed here as a way to save. Although many self-employed people who run their own business believe that their business will be their retirement plan, “that simply should not be the case,” Hardy said. Instead, you should get in the habit of saving for your future every month with one of these accounts because they will allow you to diversify your holdings and ensure there’s money for your retirement if you can’t cash in on your business.

With any of these accounts, many investment companies will allow you to set up automatic monthly contributions from your checking account, Hardy said. And the amount you can contribute can be as low as $25 a month, he said.

If you’re not working with a financial advisor to select investments for your account, Hardy recommends investing in target-date funds, which automatically shift holdings from stocks to less risky fixed-income assets as you get closer to your retirement date. And be sure to pay attention to fees when setting up an account, which can eat into your returns. The lower the fees, the better.